Asbury's Tekion Finish Line and the Used-Vehicle Pivot

Q2 2026: New CEO Daniel Clara pushes through the final DMS rollout while flipping the used-car playbook to volume — and the market is still pricing in the discount.

ABG · Earnings Call · 2026-07-28

Tekion: The Last Mile

Asbury’s transition year is cresting. With 70% of its store base now on Tekion, management is seeing the operational payoff in the most seasoned markets. “Crossing the 70% implementation milestone is important because an increasing percentage of our store base is now positioned to benefit from a common operating platform,” new CEO Daniel Clara told investors on the Q2 call “Crossing the 70% implementation milestone is important because an increasing percentage of our store base is now positioned to benefit from a common operating platform.” — Daniel Clara, Chief Executive Officer (CEO) · 2026-07-28 The early evidence is clear: Koons, Georgia, and Florida stores have averaged 12% more units per salesperson and 10% more dollars per technician on a year-over-year basis after five or more months post-conversion. That has translated into a visible SG&A squeeze — same-store adjusted SG&A-to-gross came in at 65.3% in Q2, and the company expects to reach the low 60s by the end of 2027 as the new DMS matures. The metric backdrop supports the claim: operating income rebounded to $251M in Q2 2026, up 7% YoY and +98% QoQ, even as revenue contracted.

The Used-Vehicle Flip

Perhaps the most consequential shift this quarter is the strategic pivot in pre-owned. After years of deliberately “not chasing volume” to protect gross profit, Clara announced a May change: "In May, we began shifting our approach toward driving higher used vehicle volume, while still maintaining healthy PVRs," he told analysts “In May, we began shifting our approach toward driving higher used vehicle volume, while still maintaining healthy PVRs.” — Daniel Clara, Chief Executive Officer (CEO) · 2026-07-28 The results are beginning to show: used retail PVR rose 5% sequentially to $1.93k on flat volume, and the company is methodically rebuilding inventory from auctions (~6.5k cars) and off-lease channels. But this is a deliberate, risk-managed move — the team is acutely aware of the September used-car valuation cliff. As Clara put it in the prepared remarks, "We are seeing positive results from this strategy."

Our used vehicle strategy is already producing sequential improvement while positioning us for higher volume over time.
Daniel Clara, Chief Executive Officer (CEO) · 2026-07-28

The key risk is negative equity for consumers, though Clara notes it's not unusual: "We have not seen anything of an uptick that is outside of the norms" “We have not seen anything of an uptick that is outside of the norms.” — Daniel Clara, Chief Executive Officer (CEO) · 2026-07-28 The move is a marked departure from the prior quarters' profit-over-volume posture, which was explicitly reiterated as recently as Q1 2026: "Our plan stays the same, maximizing gross profit rather than chasing the volume," said then-COO Clara back in July 2025 “Our plan stays the same, maximizing gross profit rather than chasing the volume.” — Daniel Clara, Chief Operating Officer · 2025-07-29 That contrast is what makes Q2 a genuine inflection.

Buybacks: Leaning in at the Expense of Leverage

Capital allocation has flipped decisively toward shareholders. CFO Michael Welch confirmed that the company has repurchased 1.35 million shares for $278 million YTD — that's about 7% of the share count — and is “temporarily” letting leverage run above the 3.0x target at 3.4x to buy the misfit valuation. “We made the strategic decision to temporarily take on higher leverage given the valuation of our shares and the performance outlook of our business” “We made the strategic decision to temporarily take on higher leverage given the valuation of our shares and the performance outlook of our business.” — Michael D. Welch, Chief Financial Officer (CFO) · 2026-07-28 This echoes the company's prior conviction that the market is underpricing the Tekion payoff. As Welch told investors in April, "We do think the back half of this year and into 2017, the EBITDA comes up dramatically with the Tekion rollout behind us" “We do think the back half of this year and into 2017, the EBITDA comes up dramatically with the Tekion rollout behind us.” — Michael Welch, Chief Financial Officer · 2026-04-28 The balance sheet is stretched but not broken: interest coverage at 5.2x gives room to service debt while management targets 3.0x by early-mid 2027. The strategic approach to capital allocation is now firmly buyback-first, with M&A deferred until the share price normalizes. And the Total Care Auto deferral will remain a modest 25-30% headwind, but the company expects it to flatten as SAAR stabilizes and Chambers stores complete their TCA rollout.

Market Backdrop and Valuation

The market hasn't fully rewarded this progress — ABG is down ~30% from its January 2025 peak, and the 90-day trend is still negative. But there are signs the discount is closing: the last 90 days show +5.3% return, though still 13% below its July peak. With the company trading at just 0.2x price-to-revenue and ~4.3x operating income (4.3x operating income), the buyback logic is understandable. The Tekion roll-out has been the overhang; the market wants proof of the cost savings and the used-volume pivot before re-rating. Q2's numbers, particularly the SG&A improvement and the June fixed ops turn (+4%), are preliminary evidence that the transition is working. It will be a busy Q3 — 30% of stores remain to be rolled out — but the path to "low 60s" SG&A is clear.